The government's decision to raise import duty on nineteen high-end consumer items including washing machines, air conditioners, footwear and diamonds has led to worries about prices of these items going up.
The government has also introduced import dutyon aviation turbine fuel (jet fuel)and that is definitely going to affect flyers.
But experts believe the government is doing this in a bid to check the fall of the rupee and reduce the current account deficit which is expected to be around 2.8 per cent of GDP this year.The government's plan to control the falling rupee and get foreign funds flowing back to India, and to reduce current account deficit may cause some worry for consumers but the real issue is: will it be enough to tackle the problem at handPrices of several items are set to go up as imports are going to get costlier.
The import duty on air conditioners have been increased from the 10 per cent to 20 per cent.
The same is for refrigerators, where the duty has been increased from 10 per cent to 20 per cent.
Washing machines below 10 kilograms will also see an increase in duty from 10 per cent to 20 per cent.
The import duty on compressors that are used for refrigerators and washing machines is up by 2.5 per cent (from 7.5 per cent to 10 per cent).These moves have been set in motion after the government announced a five-point strategy to tackle the fall of the rupee, after a top level meeting held by PM Narendra Modi along with Finance Minister Arun Jaitley and Reserve Bank of India officials earlier this month.
Going into an election year, the government does want to be seen as performing badly when it comes to managing the economy.Dinaz Madhukar, executive vice president at DLF Luxury Retail and Hospitality, told TheIndianSubcontinent, "Every time there is a hike the brands try to absorb some of those variations so that the end consumer is protected and this is particularly true of the international brands.
But yes there is going to be an impact and we will be able to quantify it only over a period of time."While store owners say are still selling these items at old rates, the impact will be seen in the next couple of weeks as companies are yet to decide on passing on the burden to consumers.
But it's the hike on duty on aviation turbine fuel (ATF) that will be passed on immediately to fliers, and flight fares may go up soon.
The aviation industry is yet to react but insiders say rising oil prices and a hike on import duty is a double whammy for airlines that operate on thin margins.However, the big question is whether this is enough to tackle the problem.
Aditi Nayar, principal economist at ICRA, told TheIndianSubcontinent, "It's really quite small and the impact of these measures on H2 of FY19 will be quite limited between one to three million dollars at best so it's going to have a really small impact on the current account deficit as a whole and as of now we continue to expect the current account deficit to touch 2.8 per cent of GDP for FY19."Abheek Barua, chief economist at HDFC Bank, added, "It (the import duty hike) is unlikely to be effective because the amount of the 19 goods that the government has taxed, which were imported last year, added up to just about $12 billion, which is just 2 per cent of the total imports.
12 billion out of over $200 billion of import is just minuscule, really.
So, it's not likely to have a big relief impact, and we've seen that in the market.
However, it should be seen as a temporary measure, and not one that signals the beginning of a protectionist approach towards fostering industry."